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Sectoral Decomposition of the Balassa–Samuelson Effect in CEE Countries: A CGE Analysis

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  • Jakub Boratyński
  • Jakub Borowski
  • Adam Czerniak
  • Dariusz Rosati

Abstract

We examine the impact of the Balassa–Samuelson effect on prices at the industry level, based on the results of computable general equilibrium (CGE) model simulations for four Central and Eastern European (CEE) countries. We decompose the results to explain the differentiation of impact on unit production cost by industry. We find that direct cost savings from productivity improvement typically exceed the effects of higher wages, even when considering the reciprocal effects of increased prices of nontradables. These effects are negative for the price competitiveness of the tradable industries and can be reduced by procompetition regulation in the nontradable sector.

Suggested Citation

  • Jakub Boratyński & Jakub Borowski & Adam Czerniak & Dariusz Rosati, 2019. "Sectoral Decomposition of the Balassa–Samuelson Effect in CEE Countries: A CGE Analysis," Eastern European Economics, Taylor & Francis Journals, vol. 57(2), pages 153-177, March.
    • Handle: RePEc:mes:eaeuec:v:57:y:2019:i:2:p:153-177
    DOI: 10.1080/00128775.2018.1552521
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    Cited by:

    1. Botero García, Jesús Alonso & Hurtado, Alvaro & Montañez Herrera, Diego Fernando, 2021. "The productivity of the agricultural sector and its effects on economic growth: a CGE analysis," Conference papers 333318, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Czerniak, Adam & Borowski, Jakub & Boratyński, Jakub & Rosati, Dariusz, 2020. "Asset price bubbles in a monetary union: Mind the convergence gap," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 288-302.

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